The first domino in this cascade of disaster fell on Sept. 17, 2008, when an unidentified Merrill Lynch registered representative received an email customer complaint. It said that the representative had entered an unauthorized order for Fannie Mae preferred stock instead of Fannie Mae bonds, and it requested a meeting with a Merrill manager.

In keeping with Merrill's protocols, the representative told an administrative manager about the email. The manager logged the incident into Merrill's central complaint system, an acknowledgment was sent to the customer, and a lawyer from the firm's Office of General Counsel (OGC) was assigned to the matter.

On Sept. 24, Managing Director Joseph Mattia and the Merrill representative met with the client, and Mattia agreed to settle the complaint. (Subsequently, the client was offered $9,198.) Hey, things happen in our biz. The broker swears she said one thing. The client swears he heard another. No one is budging. Eventually, the member firm writes out a check. Life goes on, and, hopefully, future commissions compensate for the settlement.

Case closed — or so you would think. How could something possibly go awry after the firm and the customer had agreed to settle the dispute?

A Matter of Semantics?

In a confidential memo dated Sept. 24 to the OGC lawyer, the representative stated, among other things, that “Joe Mattia, Managing Director and I met with [the client] on Sept. 24, 2008 and he withdrew his complaint.”

Hmmm — the settlement is now described by the representative as a withdrawn complaint. You don't think there's a big difference between the two descriptions? Hang on.

Mattia quickly realized that the OGC lawyer was under the impression that the customer had acknowledged that the disputed purchase was authorized and had withdrawn the complaint. Unfortunately, the customer never confirmed that the whole dispute was just a big misunderstanding and the representative's version of things was correct. Further, there was no withdrawal of the complaint — a settlement, yes, but not a withdrawal of the complaint. This was now a crucial issue because of CRD and Form U4 reporting.

Mattia tried to stay off the radar and directed others to communicate with OGC. Unfortunately, Mattia could not evade the OGC lawyer's crosshairs, as she pressed him to forward his version of events. In October, someone sent an email from Mattia's email account (with his knowledge and permission) to the OGC stating:

“On Wednesday, September 24, 2008 I met with [Representative] and [the client] concerning his FNMA preferred stock. During the meeting [the client] acknowledged that his [sic] did speak to [Representative] and she did inform him of the nature of the investment prior to purchase. It is my understanding he withdrew his complaint. Regards, Joe”

Failure to Communicate

Following receipt of Mattia's email, the representative's CRD and Form U4 were amended to reflect a withdrawn customer complaint. However, in November 2008, OGC realized that there had been a failure to accurately report the incident. On Dec. 1, 2008, Merrill discharged Mattia because he had “caused a registered person under his supervision to report to the firm's Office of General Counsel that a client complaint was withdrawn when, in fact, it had been settled. Mr. Mattia subsequently caused an email to be sent in his name confirming that the complaint had been withdrawn.”

Next, the Financial Industry Regulatory Authority alleged that Mattia violated former NASD Rule 2110: Standards of Commercial Honor and Principles of Trade, because he knew or should have known that:

  • the customer's complaint had not been withdrawn — in fact, the complaint had been settled;
  • the customer had not admitted that the representative previously informed him of the intent to purchase stock rather than a bond.

Accordingly, Mattia submitted a settlement offer to FINRA in December 2010, which was subsequently accepted. Under the terms of the offer, without admitting or denying the allegations or findings, Mattia consented to a three-month suspension in all capacities and a $5,000 fine. (Department of Enforcement, Complainant, versus Joseph Mattia, Respondent; Order Accepting Offer of Settlement, FINRA Disciplinary Proceeding No. 20080161205, January 14, 2011).

Bill Singer is the publisher of RRBDLAW.com and BrokeAndBroker.com.